Question 1

If C+I+G>Y, then net exports and net capital outflow are both greater than zero.

Accepted Answer

A) True 
 B)False

Question 2

Capital flight raises a country's interest rate.

Accepted Answer

A) True 
 B)False

Question 3

If a country's budget deficit increases, then in the market for foreign­currency exchange,

Accepted Answer

A)   the supply of its currency shifts right, so the exchange rate falls.
B)   the demand for its currency shifts right, so the exchange rate rises.
C)   the supply of its currency shifts left, so the exchange rate rises.
D)   the demand for its currency shifts left.so the exchange rate falls.E) C) and D)
F) B) and D)

Question 4

Figure 32-4
Refer to this diagram of the open-economy macroeconomic model to answer the questions below. 
-Refer to Figure 32-4. Suppose that the government goes from a budget surplus to a budget deficit. The effects of the change could be illustrated by

Accepted Answer

A)   shifting the demand curve in panel a to the right and the demand curve in panel c to the left.
B)   shifting the demand curve in panel a to the left and the supply curve in panel c to the left.
C)   shifting the supply curve in panel a to the right and the demand curve in panel c to the right.
D)   shifting the supply curve in panel a to the left and the supply curve in panel c to the left.E) None of the above
F) All of the above

Question 5

If the French government increases its expenditures and reduces taxes, then France's interest rate

Accepted Answer

A)   and its exchange rate rise.
B)   rises and its exchange rate falls.
C)   falls and its exchange rate rises.
D)   and its exchange rate fall.E) C) and D)
F) A) and B)

Question 6

If the U.S. government imposes a quota on imports of jet planes, then

Accepted Answer

A)   net capital outflow rises.
B)   net exports rise.
C)   the exchange rate rises.
D)   All of the above are correct.E) B) and C)
F) C) and D)

Question 7

If the supply of dollars in the market for foreign-currency exchange shifts left, then the exchange rate

Accepted Answer

A)   rises and the quantity of dollars exchanged falls.
B)   rises and the quantity of dollars exchanged does not change.
C)   rises and the quantity of dollars exchanged rises.
D)   falls and the quantity of dollars exchanged does not change.E) A) and C)
F) B) and D)

Question 8

Which of the following would do the most to reduce a trade deficit?

Accepted Answer

A)   increase domestic saving
B)   increase domestic political stability and respect of property rights
C)   other countries reduce their trade restrictions
D)   raise tariffsE) All of the above
F) A) and B)

Question 9

Although trade policies do not affect a country's overall trade balance, they do affect specific firms and industries.

Accepted Answer

A) True 
 B)False

Question 10

If for some reason Americans desired to decrease their purchases of foreign assets, then other things the same

Accepted Answer

A)   both the real exchange rate and the quantity of dollars exchanged in the market for foreign-currency exchange would fall.
B)   both the real exchange rate and the quantity of dollars exchanged in the market for foreign-currency would rise.
C)   the real exchange rate would rise and the quantity of dollars exchanged in the market for foreign-currency would fall.
D)   the real exchange rate would fall and the quantity of dollars exchanged in the market for foreign-currency would rise.E) None of the above
F) A) and D)

Question 11

Which of the following would both raise the U.S. exchange rate?

Accepted Answer

A)   capital flight from other countries to the U.S. occurs and the U.S. moves from budget surplus to budget deficit
B)   capital flight from other countries to the U.S. occurs and the U.S. moves from budget deficit to budget surplus
C)   capital flight from the U.S. to other countries occurs, the U.S. moves from budget surplus to budget deficit
D)   capital flight from U.S. to other countries occurs, the U.S. moves from budget deficit to budget surplusE) B) and C)
F) C) and D)

Question 12

When a country suffers from capital flight, the exchange rate

Accepted Answer

A)   depreciates, because demand in the market for foreign-currency exchange shifts left.
B)   depreciates, because supply in the market for foreign-currency exchange shifts right.
C)   appreciates, because demand in the market for foreign-currency exchange shifts right.
D)   appreciates, because supply in the market for foreign-currency exchange shifts left.E) A) and B)
F) A) and D)

Question 13

If a country has a positive net capital outflow, then

Accepted Answer

A)   on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds.
B)   on net it is purchasing assets from abroad. This subtracts from its demand for domestically generated loanable funds.
C)   on net other countries are purchasing assets from it. This adds to its demand for domestically generated loanable funds.
D)   on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds.E) A) and B)
F) A) and C)

Question 14

A rise in the budget deficit

Accepted Answer

A)   shifts both the supply of loanable funds in the market for loanable funds and the supply of dollars in the market for foreign-currency exchange right.
B)   shifts both the supply of loanable funds in the market for loanable funds and the supply of dollars in the market for foreign-currency exchange left.
C)   shifts both the demand for loanable funds in the market for loanable funds and the demand for dollars in the market for foreign-currency exchange right.
D)   shifts both the demand for loanable funds in the market for loanable funds and the demand for dollars in the market for foreign-currency exchange left.E) A) and D)
F) C) and D)

Question 15

When a country imposes an import quota, its exchange rate

Accepted Answer

A)   rises because the supply of dollars in the market for foreign-currency exchange falls.
B)   falls because the supply of dollars in the market for foreign-currency exchange rises.
C)   rises because the demand for dollars in the market for foreign-currency exchange rises.
D)   falls because the demand for dollars in the market for foreign-currency exchange falls.E) None of the above
F) All of the above

Question 16

Other things the same, an increase in the U.S. interest rate

Accepted Answer

A)   raises net capital outflow which decreases the quantity of loanable funds demanded.
B)   raises net capital outflow which increases the quantity of loanable funds demanded.
C)   lowers net capital outflow which decreases the quantity of loanable funds demanded.
D)   lowers net capital outflow which increases the quantity of loanable funds demanded.E) None of the above
F) All of the above

Question 17

The country of Solidia is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, we would expect Solidia's

Accepted Answer

A)   real interest rate to rise.
B)   real exchange rate to rise.
C)   net exports to rise.
D)   None of the above is likely.E) A) and C)
F) A) and B)

Question 18

If Argentina suffers from capital flight, Argentinean domestic investment and Argentinean net exports will both decline.

Accepted Answer

A) True 
 B)False

Question 19

If the U.S. government imposes an import quota on beef, U.S. net exports will

Accepted Answer

A)   increase, the real exchange rate of the dollar will appreciate, and domestic sales of U.S. beef will increase.
B)   increase, the real exchange rate of the dollar will depreciate, and domestic sales of U.S. beef will not change
C)   not change, the real exchange rate of the dollar will appreciate, and domestic sales of U.S. beef will increase.
D)   not change, the real exchange rate of the dollar will depreciate, and domestic sales of U.S. beef will not change.E) B) and D)
F) A) and B)

Question 20

If the quantity of loanable funds supplied is greater than the quantity demanded, then there is a

Accepted Answer

A)   shortage of loanable funds and the interest rate will fall.
B)   shortage of loanable funds and the interest rate will rise.
C)   surplus of loanable funds and the interest rate will fall.
D)   surplus of loanable funds and the interest rate will rise.E) None of the above
F) A) and B)

Exam 32: A Macroeconomic Theory of the Open Economy

Although trade policies do not affect a country's overall trade balance, they do affect specific firms and industries.

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If a country's budget deficit increases, then in the market for foreign­currency exchange,

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If the supply of dollars in the market for foreign-currency exchange shifts left, then the exchange rate

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When a country suffers from capital flight, the exchange rate

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Figure 32-4 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-4. Suppose that the government goes from a budget surplus to a budget deficit. The effects of the change could be illustrated by

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If a country has a positive net capital outflow, then

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When a country imposes an import quota, its exchange rate

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The country of Solidia is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, we would expect Solidia's

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A rise in the budget deficit

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If for some reason Americans desired to decrease their purchases of foreign assets, then other things the same

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Other things the same, an increase in the U.S. interest rate

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If the French government increases its expenditures and reduces taxes, then France's interest rate

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If C+I+G>Y, then net exports and net capital outflow are both greater than zero.

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If the quantity of loanable funds supplied is greater than the quantity demanded, then there is a

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Capital flight raises a country's interest rate.

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Which of the following would both raise the U.S. exchange rate?

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If Argentina suffers from capital flight, Argentinean domestic investment and Argentinean net exports will both decline.

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If the U.S. government imposes an import quota on beef, U.S. net exports will

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If the U.S. government imposes a quota on imports of jet planes, then

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Which of the following would do the most to reduce a trade deficit?

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